Text for Avocado Study, San Diego and Riverside County, 20....The study is based on assumptions of...

Avocado Sample Establishment and Production Costs and Profitability Analysis for San Diego and

Riverside Counties

Etaferahu Takele, Area Farm Advisor, Agricultural Economics/Farm Management, UCCE Southern California

Gary S. Bender, Farm Advisor, Subtropical Horticulture, UCCE San Diego County Ramiro Lobo, Farm Advisor, Agricultural Economics/Farm Management,

UCCE San Diego County Peggy Mauk, Farm Advisor, Subtropical Horticulture, UCCE Riverside County

Silvana Chambers, Staff Research Associate, UCCE Southern California

Establishment and Production Costs for Avocados, UCCE San Diego and Riverside Counties Page 1

Avocado Sample Establishment and Production Costs and Profitability Analysis for San Diego and Riverside Counties

Based on 2001 Data Collected in San Diego and Riverside Counties,

California

Etaferahu Takele, Area Farm Advisor, Agricultural Economics/Farm Management, UCCE Southern California

Gary S. Bender, Farm Advisor, Subtropical Horticulture, UCCE San Diego County Ramiro Lobo, Farm Advisor, Agricultural Economics/Farm Management, UCCE San Diego County

Peggy Mauk, Farm Advisor, Subtropical Horticulture, UCCE Riverside County Silvana Chambers, Staff Research Associate, UCCE Southern California

The authors wish to express their appreciation to those cooperators who provided data and review in the development of this study.

To simplify information, trade names of some products have been used in this report. No endorsement of named products is intended, nor criticism implied of similar products that are not mentioned.

The avocado industry of California constituted about 58,600 acres in 2000 according to the California Avocado Commission (CAC). Acreage declined from over 70,000 at the beginning of the 1990s. San Diego and Riverside Counties are among the major avocado producers in California. Currently they constitute a little over 25,400 acres in San Diego and about 6,900 in Riverside a total of about 32,300 to 32,860 acres (depending on the source of estimates) which is about 55% to 56% of the avocado acreage in California. Many of the orchards in San Diego and Riverside Counties are old and several are being considered for replanting. We present this study to growers, prospective growers, agricultural lenders, and others concerned with the avocado industry to use as an information source for production practices and to estimate financial requirements of establishing and maintaining avocado groves. The study is based on assumptions of avocado grove establishment and production practices that are considered typical in San Diego and Riverside Counties. While the assumptions outlined in this study may not fit all conditions, they represent current trends of production and the methodology can be easily adapted to address individual situations and to analyze costs, profits, and investments not only in San Diego and Riverside Counties but also in other production areas throughout California. Most of the information in this cost study is collected in San Diego County, however, certain changes are necessary to reflect the costs for Riverside County. Whereas there could be some differences in almost all costs, we assumed that the major changes come from water prices, land values, and avocado prices. When practices deviate from those given in this publication, growers can enter and substitute their own costs for comparison with ours in the “Your cost” column in tables 2 and 3. Please note that because of rounding, the totals given in tables 1 through 7 may differ slightly from the sums of their constituent numbers. Following is a discussion of the assumptions and calculation methods we used in this study. Cultural practices and cost data are presented in detail in seven tables: Table 1. Sample costs per acre to establish an avocado grove in San Diego County Table 2. Costs per acre to produce avocados in San Diego County

Table 3. Costs and returns per acre to produce avocados in San Diego County


Table 4. Monthly cash costs per acre to produce avocados in San Diego County Table 5. Farm investment values and annual costs in San Diego County Table 6. Range analyses of avocado production costs and returns in San Diego County

Part A. Costs per acre and per pound at varying yields Part B. Returns per acre above operating costs Part C. Returns per acre above all cash costs (gross margin)

Part D. Returns per acre above total costs (returns to management) Table 7. Range analyses of avocado production costs and returns in Riverside County

Part A. Costs per acre and per pound at varying yields Part B. Returns per acre above operating costs Part C. Returns per acre above all cash costs (gross margin)

Part D. Returns per acre above total costs (returns to management)

ASSUMPTIONS

1. ORCHARD SPECIFICATION

We based this study on a grove size of 11 acres located on sloped land. Ten acres will be in the actual avocado production and one acre in roads and farmstead. 2. ESTABLISHMENT AND PRODUCTION PRACTICES

Land preparation for orchard establishment. In San Diego and Riverside Counties new avocado orchards are commonly planted on previous avocado ground thus all the roads and drainage systems are in place except for a few repairs and maintenances that may be needed. However, we want this study to represent plantings on new/open land in which case all the land preparation costs are included. Land preparation for new orchard layout includes the following. In hillside plantings, brush is first crushed into the slope by a crawler tractor to leave organic residue on the surface and to help with erosion control. In steeper areas, hand clearing of brush may be necessary. Roads required for travel and harvest are constructed before planting. Tree orientation is usually designed to suit the irrigation and drainage system, slope and grading for erosion control. Irrigation lateral lines run along the contour of the slopes. Erosion control methods include paving the roads, installing drainage systems and seeding the exposed areas of the slope. Many of the land preparation operations are done under contract by orchard management services.

Planting. There are several types of planting spaces. In recent years there have been some high-density plantings which include spacings of 6’ x 6’, 8’ x 8’, 10’ x 10’ etc. However, this study is based on the most common planting space of about 20' x 15' with 145 trees per acre. More than 90% of the plantings in San Diego and Riverside Counties are the Hass variety. For this study we used Hass grafted onto clonal rootstock; these trees cost almost twice that of trees on seedling rootstock. Clonals are important for replanting in potential root-rot infested areas. Trees are planted and trunks are wrapped to prevent sunburn and to reduce rodent damage. After planting mulch is added around the base so that moisture loss is decreased and weeds are contained. The mulch application also helps with erosion control. At planting a stake is placed


beside each tree for support. In this study we assumed 2% or 3 trees per acre are being replaced during the second year. Pruning. Pruning begins at around year 4 of establishment. Pruning consists of removing deadwood, and creation and maintenance of a desirable tree structure and size. This operation also creates access for easy harvest. Irrigation. In this study we obtained water price information from the University of California Cooperative Extension (UCCE) farm advisors in San Diego County and the Rancho California Water District for Riverside County. Water costs used in this study are $600 per acre-foot for San Diego and about $420 per acre-foot for Riverside County. The irrigation system is installed before planting in year 1. During the first two years of establishment, the orchard is irrigated using drip emitters. In the third year the drip emitters are replaced with micro sprinklers. One micro sprinkler, emitting 12 to 15 gallons per hour, is used per tree. Water is not allowed to wet the tree trunk. The frequency and amount of irrigation depends on weather and rainfall. In some years irrigation is needed every month of the year, and in other years irrigation may not be required during the winter and early spring. In this study we assumed irrigation taking place throughout the year with frequency of two times a week in year one and one time per week from year 2 on. During very hot summer months, i.e. July and August more that one irrigation per week may be needed. Irrigation cost also includes labor to inspect the system for water flow and to fix any problems such as breaks, leaks or emitter clogging. Water requirement estimates at various ages of trees is provided in table A. Table A. Applied irrigation water in San Diego and Riverside

Counties avocado production Year Acre-inches per acre per year Gallons per tree per year

1 6 1,124 2 11 2,060 3 16 2,997 4 21 3,933 5 26 4,870 6 30 5,619

7 + 36 6,743 Pest Management. Beneficial insects are used to control omnivorous looper and amorbia moth. A pest control advisor (PCA) monitors pest population levels in the orchard and release beneficial insects as needed. Persea mite is generally under biological control, however, in some cases other control measures may be required. In this study we used VeratranD sprayed for thrips control three times just after fruit set. Thrips control should only be done if recommended by a licensed PCA. Gopher and squirrel controls are needed early during the first three or four years of tree establishment. Gophers can cause serious damage to young trees and ground


squirrels can cause erosion problems by tunneling through the soil. Baits are used for the control of gophers and squirrels. Other pests may be present in the orchard. Growers can adjust their costs of pest management as applicable. For information and pesticide use permits, contact your county Agricultural Commissioner's office. You can also find pest management information from the University of California on the UC Statewide Integrated Pest Management Project website, http://www.ipm.ucdavis.edu/PMG/selectnewpest.avocado.html. Weed Management. Controlling weeds includes spraying several times (three times in this study) a year and cutting weeds using weed whips once a year, usually during spring. As trees grow larger, the shade will reduce weed growth. Fertilization. The amount of fertilizer applied increases with age of trees. Table B provides the typical amounts of nitrogen (N) applied by growers. Nitrogen is injected through the irrigation line during the course of the year. Additionally, zinc sulfate is applied beginning year 3.

Table B. Pounds of nitrogen fertilizer applied in San Diego and Riverside Counties avocado production

Year Pounds of N per acre Pounds of N per tree 1 22 0.15 2 44 0.30 3 65 0.45 4 87 0.60 5 109 0.75 6 131 0.90 7 153 1.05

Pollination. Contracting with beekeepers to provide beehives for pollination begins in the third year of establishment. 3. HARVESTING, MARKETING, AND INSPECTION Harvesting begins at the end of the third year of establishment. Weather and market conditions dictate the period of harvest. Hass avocados are generally size picked from January through August. In this study we assumed that harvesting takes place in the months of January, March, and June.

Harvesting costs include picking and hauling to a nearby packinghouse. There are also marketing order fee by the California Avocado Commission (CAC) and inspection fee by the California Department of Food and Agriculture (CDFA). Picking and hauling costs are based on pounds of production. CAC marketing order fee is based on pounds of avocados sold. CDFA inspection fee is for maturity and quality standards. Picking and hauling costs for this study were provided by the UCCE San Diego County farm advisor. The CAC marketing order fee was obtained from the CAC. The inspection fee was provided by CDFA. Risk. There are several risks associated with producing and marketing avocados. Production risk can be caused by various sources of uncertainty including high winds, insect damage, diseases, and severe frost. Frost is the main production risk


in San Diego and Riverside Counties. The market and prices of avocados are also very volatile. They are caused by factors such as a decrease in the demand for avocados, and or an oversupply in the national and international production.

While this study makes every effort to model a production system based on typical, real world practices, it cannot fully represent financial, agronomic, and market risks which affect the profitability and economic viability of all producers. Access to information on production practices, prices, and markets are crucial for those involved in avocado production and marketing.

4. YIELD AND PRICES

Yield. Fruit bearing begins in the third year of establishment of the avocado trees. We used the yield assumptions provided in table C to estimate income during the establishment years. During the production years, we used the average between 5,000 of 10,000 lbs as the basis of our analysis. However, we analyzed the effects of a range of yield on returns and profitability (tables 6 and 7).

Table C. Typical yield assumptions of avocados in San Diego and Riverside Counties

Year Yield (lbs/acre) 3 725 4 2,900 5 4,350 6 5,510

7+ (Maturity) 5,000 to 10,000

Prices/Returns: We used a five-year average price (Agricultural Crop Reports for the 1996 to 2000 period) for San Diego and Riverside Counties (appendix table) to estimate gross returns, respectively. However, we included a range of prices to analyze returns and profitability in the production years (tables 6 and 7).

5. INTEREST ON OPERATING CAPITAL

We calculated interest on operating capital using a nominal rate of a three-year average (1999 to 2001) of 9 percent per year. Interest on operating capital reflects the costs of borrowing money or an opportunity cost for using in-house funds. Interest on operating capital is charged until income is received from the crop at harvest. 6. LABOR

Labor cost includes both owner and hired services at the same wage rate. Labor wages vary by operation, location and type of benefits included. We used $12 per hour wage rate including benefits based on information we obtained from some growers in San Diego and Riverside Counties.

7. CASH OVERHEAD

Office expenses. Expenses in this category cover office supplies, telephone services, operating costs for a fax machine, photo copier, and computer, bookkeeping, accounting, legal fees, and so on. Property taxes. Counties charge a base property tax rate of 1 percent on the assessed value of the property, including land, equipment, buildings, and improvements. Special assessment districts in some counties charge additional


taxes on property. For our study we calculated county taxes at 1 percent of the value of the property. Property insurance. Growers also carry insurance for property protection, which is typically calculated at 0.713 percent of the average value of assets. In addition, a farm of the size specified in this report would carry liability insurance of $367 per year to cover accidents on the entire farm. Investment repairs. Investment repairs and maintenances are calculated at 1 to 3.5 percent of the investment values as suggested in some farm management books. The repair rate for the irrigation system, however, are calculated at 10% for sprinkler and dripper emitters and 5% for the main system based on local information. Interest on establishment. Interest on establishment is calculated at the nominal rate to reflect the accruing of charges on loans or returns forgone during the establishment years. Other expenses. These expenses include root rot analysis, liability insurance, leaf analysis, soil/water analysis conducted each year, sanitation fee, and interest on operating capital (cash overhead). Sanitation fee includes rent for portable field toilets during harvest time.

8. NON-CASH OVERHEAD COSTS The non-cash overhead costs of assets include land rent and ownership costs of other investments like building, tools, irrigation system, and amortized establishment costs. Land rent. In most cases, in San Diego and Riverside Counties, groves are being re-planted on previous avocado land, therefore most growers may not be incurring land mortgage. However, we place an opportunity cost for the use of land in avocado production. That is to show that the land could have been used in other return (interest) yielding alternatives. The land rent is to reflect the return foregone from those alternatives. Land rent is calculated at an opportunity cost rate of 6.5% of the value of land. This rate is the ten year average of rates of return to production assets from current income of the California’s agricultural sector. The idea is that the use of the land should at least earn this rate. The value of land is calculated from orchard values published in the California Chapter of the American Society of Farm Managers and Rural Appraisers for year 2000. We were told by local appraisers that the value of land will constitute about 40% to 65% of the orchards value. For this study, we calculated the land value to account for 60% of the value of orchards for San Diego and Riverside Counties. This value equals $7,680 per acre for San Diego and $6,150 per acre for Riverside County. Since there are 10 acres in the actual avocado orchard with another 1 acre of roads and farmstead on which avocados are grown, this increases the cost of land to $8,450 per producing acre in San Diego and $6,770 in Riverside County. Ownership costs of investments. This costs are calculated using the capital recovery method. This method allows growers to calculate an annual amount of money to charge the enterprise so that the value of assets will be recovered within a specified period of time at a designated rate of interest. The rate of interest used to calculate ownership cost is 6.5 percent -- California’s long-term rate of return on agricultural production assets from current income.


Amortized establishment cost. We used the first six years as periods of establishment. We made the assumption that after year six the orchard is considered mature. Our estimate of the total six-year tree establishment costs is $18,991 per acre for San Diego County and $17,557 per acre for Riverside County. This amount is the accumulated cost of establishment less the gross income over the six-year period. The value of trees is amortized at the long-term average rate of return on agricultural production assets from current income over a 30-year productive life to determine the annual amount that must be recovered from the investment. 9. SUMMARY OF PRODUCTION COSTS

Our estimates of total annual production cost for avocados in San Diego and Riverside Counties are $7,618 and $6,795 per acre (tables 2 and 3), respectively. Table 2 presents costs by type of activity and table 3 present costs by type of input. The pie graphs that follows shows the proportion of costs by category. Cultural costs include items such as drain cleaning, weed control, pruning, pollination, road repair, pest control, fertilization, and irrigation. Harvesting, marketing, and inspection costs include picking, hauling, and CAC assessment and CDFA inspection fees. Interest on operating capital includes all financial charges or opportunity costs. Cash overhead costs include items such as root rot analysis, liability insurance, leaf analysis, soil analysis, sanitation fee, office expenses, property taxes, property insurance, and investment repair. Non-cash overhead or annual ownership costs include land rent, buildings, tools, irrigation system, and amortization of the accumulated tree establishment.

10. PROFITABILITY ANALYSIS

We analyzed profitability using break-even costs per pound for various yield levels as well as using gross and economic margins at various combinations of yield and prices. Break-even costs allow growers to compare expected market prices with the unit cost of production. Break-even cost is calculated as the cost of production per acre

Proportion of production costs for avocados in San Diego County, 2001

Interest on Operating

Capital4%

Cultural Costs40%

Non-Cash Overhead

29%

Harvesting, Marketing,

and Inspection

19%

Cash Overhead

8%

Proportion of production costs for avocados in Riverside County, 2001

Cash Overhead

9%

Harvesting, Marketing,

and Inspection

21%

Non-Cash Overhead

29%

Cultural Costs37%

Interest on Operating

Capital4%


divided by yield per acre. Gross margin (or returns above cash costs) is what growers often refer to as profit if there is no debt on the farming operation. It approximates the return to management and investment. If you deduct depreciation, it also approximates taxable income. Gross margin is calculated as gross returns (price times yield) minus cash costs of production. Economic profit (or returns above total cost including management) is a very useful measure of how attractive the enterprise is for potential investors and entrants into the business. Economic profit can be positive or zero. A zero economic profit should not be alarming if all costs, including the owners’ labor and management fees, are included in the production cost. In this study we do not include management charges, so the return after all costs are deducted reflects return to management. Returns to management is calculated as gross returns minus cash and non-cash costs of production. Crop yield and prices received by growers vary from individual to individual. We have provided a range analyses of price and yield variations on profitability so that each grower can find figures that best match his or her specific situation. The range analyses include break-even costs at various yields as well as gross margins and returns to management at various yields and price combinations (tables 6 and 7).


REFERENCES American Society of Agricultural Engineers. 1992. American Society of Agricultural Engineers Standards Yearbook. St. Joseph, MI.: ASAE. Bender, G. S. 1999. Avocado Fertilization. University California Cooperative Extension. San Diego, CA. Bender, G. S. 1999. Avocado Irrigation Guide. University California Cooperative Extension. San Diego, CA. Bender, G. S. Orchard Operations for Avocados in San Diego County. University California Cooperative Extension. San Diego, CA. Boehlje, M. D., and V. R. Eidman. 1984. Farm Management. John Wiley and Sons. New York, NY. California Avocado Crop Statistics. 2000. California Avocado Commission. Santa Ana, CA. Integrated Pest Management Education and Publications. 2001. UC IPM Pest Management Guidelines, Avocados. In Faber, B. A., P.A. Phillips, L. J. Marais, B. B. Westerdahl, and U.C. Kodira (ed.). University of California. Division of Agriculture and Natural Resources. Oakland, CA. http://www.ipm.ucdavis.edu/PMG/selectnewpest.avocado.html Riverside County Agricultural Commissioner and Weights & Measures. Agricultural Crop Reports 1996-2000. Riverside, CA. San Diego Department of Agricultural, Weights, and Measures. Crop Statistics and Annual Reports 1996-2000. San Diego, CA. Schwankel, L., T. Prichard, B. Hanson, and I. Wellman. 2000. Costs of Pressurized Irrigation Systems for Tree Crops. University of California Agriculture and Natural Resources. Oakland, CA. Trends in Agricultural Land and Lease Values. 2001. Californian Chapter or the American Society of Farm Managers and Rural Appraisers. Sacramento, CA. http://www.calasfmra.com/landvalues/index.htm Unites States Department of Agriculture-Economic Reporting Service. 2001. Farm Financial Ratios Indicating Solvency and Profitability 1960 – 2000, California. www.ers.usda.gov/data/farmbalancesheet/fbsdmu.htm

Year 1st 2nd 3rd 4th 5th 6th

OPERATING COSTS:Pre-Planting Costs:Clear land & road building 2,000Orchard layout 96

TOTAL PRE-PLANTING COSTS 2,096Planting Costs:Avocado tree 2,755Digging, planting, wrapping, & mulching 392Staking 376

TOTAL PLANTING COSTS 3,522Replanting Costs:Replaced trees - 2% 57Digging, planting, wrapping,

& mulching replaced trees - 2% 8Staking replaced trees - 2% 8

TOTAL REPLANTING COSTS 73Cultural Costs: (Materials, Labor, Fuel, Lube, & Repair)Erosion control - clean drain 10 10 10 10 10 10Weed control - Roundup (3x) 114 114 114 114 114 114Orchard pruning 64 128 255Pollination 84 84 84 84Road repair 38 38 38Weed control - weed whip (1x) 24 24 24 24 24 6Rodent control - gopher traps (2x) 15 15 15Rodent control - gopher bait (2x) 16 16 16Pest control - VeratranD Air Spray (3x) 285 285 285 285Fertilize - Zinc Sulfate 12% (1x) 2 3 5 7Fertilize CAN 17 19 38 57 76 94 113Irrigate & walk lines 492 646 896 1,146 1,396 1,596Pest control advisor 60 60 60 60Rodent control (squirrels) 25 25 25

TOTAL CULTURAL COSTS 715 926 1,588 1,904 2,201 2,568Harvesting, Marketing, and Inspection Costs:Picking - $0.16 per pound 76 464 696 882Hauling - $0.004 per pound 3 12 17 22CAC assessment fee - $0.035 per pound 25 102 152 193CDFA inspection fee - $0.001 per pound 1 3 4 6

TOTAL HARVESTING, MARKETING, AND INSPECTION COSTS 105 580 870 1,102Interest on Operating Capital @ 9%: 486 54 95 144 179 216

TOTAL OPERATING COSTS 6,820 1,052 1,788 2,628 3,250 3,887

Table 1. Sample costs per acre to establish an avocado grove in San Diego County, based on 2001 data

Cost Per Acre


1st 2nd 3rd 4th 5th 6th

Cash Overhead Costs:Root rot analysis 3 3 3 3 3 3Liability insurance 37 37 37 37 37 37Leaf analysis 5 5 5 5 5 5Soil analysis 5 5 5 5 5 5Sanitation fee 22 22 22 22Office expenses 180 180 180 180 180 180Property taxes 96 133 144 157 164 168Property insurance 8 34 43 52 57 60Investment repairs 83 83 91 91 91 91Interest on operating capital (cash overhead) 23 27 34 35 36 37Interest on establishment 721 995 1,293 1,488 1,619

TOTAL CASH OVERHEAD COSTS 440 1,227 1,559 1,880 2,088 2,226TOTAL CASH COSTS 7,260 2,280 3,347 4,508 5,339 6,113INCOME FROM PRODUCTION 0 0 769 3,074 4,611 5,841NET CASH COSTS FOR THE YEAR 7,260 2,280 2,578 1,434 728 272ACCUMULATED NET CASH COSTS 7,260 9,540 12,118 13,552 14,279 14,552

Non-cash Overhead:Land rent 549 549 549 549 549 549Building 73 73 73 73 73 73Tools (shovels, picking bags, saws, etc.) 31 31 31 31 31 31Irrigation system 68 68 68 68 68 68Drippers 36 36Sprinklers 11 11 11 11

TOTAL NON-CASH OVERHEAD COSTS 757 757 732 732 732 732TOTAL NET COST FOR THE YEAR 8,016 3,036 3,310 2,166 1,459 1,004TOTAL ACCUMULATED NET COST 8,016 11,053 14,362 16,528 17,987 18,991

Table 1. Sample costs per acre to establish an avocado grove in San Diego County, based on 2001 data (cont.)


Operationtime Labor Fuel, lube, Material Custom/ Total Your

Operation (hrs/ac) cost & repairs cost rent cost cost ($)

Cultural Costs: (Materials, Labor, Fuel, Lube, & Repair)Erosion control - clean drain 0.83 10 0 0 0 10Weed control - Roundup (3x) 9.00 108 0 6 0 114Orchard pruning 35.77 429 0 0 0 429Pollination 0 0 0 0 84 84Road repair 0 0 0 0 38 38Weed control - weed whip (1x) 0.50 6 0 0 0 6Pest control - VeratranD Air Spray (3x) 0 0 0 0 285 285Fertilize - Zinc Sulfate 12% (1x) 0 0 0 9 0 9Fertilize CAN17 (9x) 0 0 0 132 0 132Irrigate & walk lines 8.00 96 0 1,800 0 1,896Pest control advisor 0 0 0 0 60 60

TOTAL CULTURAL COSTS 54.10 649 0 1,947 467 3,063

Harvesting, Marketing, and Inspection Costs:Picking - $0.16 per pound 0 0 0 0 1,160 1,160Hauling - $0.004 per pound 0 0 0 0 29 29CAC assessment fee - $0.035 per pound 0 0 0 0 254 254CDFA inspection fee - $0.001 per pound 0 0 0 0 7 7

TOTAL HARVESTING, MARKETING, AND INSPECTION COSTS 0 0 0 0 1,450 1,450

Interest on operating capital @ 9% 269

TOTAL OPERATION COSTS/ACRE 649 0 1,947 1,917 4,782

Cash Overhead Costs: Root rot analysis 3 Liability insurance 37 Leaf analysis 5 Soil analysis 5 Sanitation fee 22 Office expenses 180 Property taxes 192 Property insurance 76 Investment repairs 91

TOTAL CASH OVERHEAD COSTS 611

Interest on operating capital (cash overhead) @ 9% 40

TOTAL CASH COSTS/ACRE 5,432

Table 2. Costs per acre to produce avocados in San Diego County, 2001

Costs per acre ($)


AnnualCost per cost:

producing capital Total Youracre recovery cost cost ($)

Non-cash Overhead:Land rent 8,450 549 549Building 1,000 73 73Tools (shovels, picking bags, saws, etc.) 300 31 31Irrigation system 944 68 68Sprinklers 145 11 11Amortized establishment cost 18,991 1,454 1,454

TOTAL NON-CASH OVERHEAD COSTS 29,830 2,186 2,186

TOTAL COST/ACRE 7,618

Table 2. Costs per acre to produce avocados in San Diego County, 2001 (cont.)


Price or Value orQuantity cost per cost per Yourper acre Unit unit ($) acre ($) cost ($)

Gross Returns 7,250.00 pound 1.06 7,685

TOTAL GROSS RETURNS FOR AVOCADOS

Operating Costs:Herbicide:

Roundup (3x) 1.00 pint 6.45 6Rent:

Bee hives 2.00 hive 42.00 84Miscellaneous:

Road repair 1.00 acre 37.50 38Harvest, Market, and Inspection:

Pick (3x) 7,250.00 pound 0.160 1,160 Pack (3x) 7,250.00 pound 0.004 29 CAC assessment (3x) 7,250.00 pound 0.035 254 CDFA inspection (3x) 7,250.00 pound 0.001 7

Pest Management: VeratranD Air Spray (3x) 1.00 acre 285.00 285 Pest control advisor 1.00 acre 60.00 60

Fertilize: CAN 17 (9x) 71.01 gallon 1.86 132 Zinc Sulfate 12% 5.00 gallon 1.73 9

Water: Water 36.00 acre-inch 50 1,800

Labor (non-machine): 54.10 hours 12.00 649Interest on operating capital @ 9%: 269TOTAL OPERATING COSTS/ACRE 4,782

NET RETURNS ABOVE OPERATING COSTS 2,903

Cash Overhead Costs: Root rot analysis 3 Liability insurance 37 Leaf analysis 5 Soil analysis 5 Sanitation fee 22 Office expenses 180 Property taxes 192 Property insurance 76 Investment repairs 91Interest on operating capital (cash overhead) @ 9%: 40TOTAL CASH OVERHEAD COSTS 650

TOTAL CASH COSTS/ACRE 5,432

Table 3. Costs and returns per acre to produce avocados in San Diego County, 2001

Establishment and Production Costs for Avocados, UCCE San Diego and Riverside CountiesPage 14

Price or Value orQuantity cost per cost per Yourper acre Unit unit ($) acre ($) cost ($)

Non-cash Overhead:Land rent 549Building 73Tools (shovels, picking bags, saws, etc.) 31Irrigation system 68Sprinklers 11Amortized establishment cost 1,454TOTAL NON-CASH OVERHEAD COSTS 2,186

TOTAL COST/ACRE 7,618

NET RETURNS ABOVE TOTAL COSTS 67

Table 3. Costs and returns per acre to produce avocados in San Diego County, 2001 (cont.)


Beginning Jan 2001 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TOTALEnding Dec 2002 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2002

Cultural Costs: (Materials, Labor, Fuel, Lube, & Repair)Erosion control - clean drain 10 10Weed control - Roundup (3x) 38 38 38 114Orchard pruning 429 429Pollination 84 84Road repair 38 38Weed control - weed whip (1x) 6 6Pest control - VeratranD Air Spray (3x) 95 95 95 285Fertilize - Zinc Sulfate 12% (1x) 9 9Fertilize CAN17 (9x) 15 15 15 15 15 15 15 15 15 132Irrigate & walk lines 40 80 120 172 224 264 303 264 211 120 60 40 1,896Pest control advisor 5 5 5 5 5 5 5 5 5 5 5 5 60

TOTAL CULTURAL COSTS 55 138 791 286 386 283 322 321 231 139 65 45 3,063

Harvesting, Marketing, and Inspection Costs:Picking - $0.16 per pound 290 290 580 1,160Hauling - $0.004 per pound 7 7 15 29CAC assessment fee - $0.035 per pound 64 64 127 254CDFA inspection fee - $0.001 per pound 2 2 4 7

TOTAL HARVESTING, MARKETING, AND INSPECTION COSTS 363 0 363 0 0 725 0 0 0 0 0 0 1,450

Interest on operating capital @ 9% 3 4 13 15 18 25 28 30 32 33 34 34 269

TOTAL OPERATION COSTS/ACRE 421 142 1,166 301 403 1,034 350 352 263 172 99 79 4,782

Cash Overhead Costs: Root rot analysis 3 3 Liability insurance 37 37 Leaf analysis 5 5 Soil analysis 5 5 Sanitation fee 7 7 7 22 Office expenses 15 15 15 15 15 15 15 15 15 15 15 15 180 Property taxes 96 96 192 Property insurance 38 38 76 Investment repairs 8 8 8 8 8 8 8 8 8 8 8 8 91

TOTAL CASH OVERHEAD COSTS 164 23 30 23 26 201 23 23 33 23 23 23 611

Interest on operating capital (cash overhead) @ 9% 1.34 1.51 1.85 2.02 2.21 3.82 3.99 4.16 4.41 4.58 4.75 4.92 40

TOTAL CASH COSTS/ACRE 586 166 1,198 326 431 1,238 377 378 300 199 126 107 5,432

Table 4. Monthly cash costs per acre to produce avocados in San Diego County, 2001

Costs per acre ($)


Salvage Capital2001 value recovery

Description Price ($) Life (yrs) ($) ($) Insurance Taxes Repairs Total

Investment:Land rent 84,500 36 84,500 5,493 0 845 0 6,338Building 10,000 36 725 36 50 225 1,036Tools (hand tools, shovels, picking bags, saws, etc.) 3,000 15 300 307 12 17 68 402Irrigation system 9,440 36 685 34 47 472 1,237Sprinklers 1,450 34 107 5 7 145 264Amortized establishment cost 189,910 30 14,543 677 950 0 16,169 TOTAL INVESTMENT 298,300 84,800 21,858 763 1,916 910 25,447

Enterprise/ Price per TotalDescription farm size Unit unit ($) cost ($)

Business Overhead: Root rot analysis 10 acre 3 30 Liability insurance 10 acre 36.7 367 Leaf analysis 10 acre 5 50 Soil analysis 10 acre 5 50 Sanitation fee 10 acre 22.29 223 Office expenses 10 acre 180 1,800

*Used to reflect a mix of new and used equipment.

Table 5. Farm investment values and annual costs based on 10 annual farmed acres in San Diego County, 2001


3,000 4,000 5,000 6,000 7,000 7,250 8,000 9,000 10,000

Part A. Costs per acre and per pound at varying yields

Operating costs/acre:Cultural Costs 3,063 3,063 3,063 3,063 3,063 3,063 3,063 3,063 3,063Harvesting Costs 600 800 1,000 1,200 1,400 1,450 1,600 1,800 2,000

Interest on operating capital 211 225 238 252 265 269 279 292 306

TOTAL OPERATING COSTS/ACRE 3,874 4,088 4,301 4,515 4,728 4,782 4,942 5,155 5,369TOTAL OPERATING COSTS/POUND 1.29 1.02 0.86 0.75 0.68 0.66 0.62 0.57 0.54

CASH OVERHEAD COSTS/ACRE 650 650 650 650 650 650 650 650 650

TOTAL CASH COSTS/ACRE 4,524 4,738 4,952 5,165 5,379 5,432 5,592 5,806 6,019TOTAL CASH COSTS/POUND 1.51 1.18 0.99 0.86 0.77 0.75 0.70 0.65 0.60

NON-CASH OVERHEAD COSTS/ACRE 2,186 2,186 2,186 2,186 2,186 2,186 2,186 2,186 2,186

TOTAL COSTS/ACRE 6,710 6,924 7,137 7,351 7,564 7,618 7,778 7,991 8,205TOTAL COSTS/POUND 2.24 1.73 1.43 1.23 1.08 1.05 0.97 0.89 0.82

Price ($/pound):0.76 -1,594 -1,048 -501 45 592 728 1,138 1,685 2,2310.86 -1,294 -648 -1 645 1,292 1,453 1,938 2,585 3,2310.96 -994 -248 499 1,245 1,992 2,178 2,738 3,485 4,2311.06 -694 152 999 1,845 2,692 2,903 3,538 4,385 5,2311.16 -394 552 1,499 2,445 3,392 3,628 4,338 5,285 6,2311.26 -94 952 1,999 3,045 4,092 4,353 5,138 6,185 7,2311.36 206 1,352 2,499 3,645 4,792 5,078 5,938 7,085 8,231

Price ($/pound):0.76 -2,244 -1,698 -1,152 -605 -59 78 488 1,034 1,5810.86 -1,944 -1,298 -652 -5 641 803 1,288 1,934 2,5810.96 -1,644 -898 -152 595 1,341 1,528 2,088 2,834 3,5811.06 -1,344 -498 348 1,195 2,041 2,253 2,888 3,734 4,5811.16 -1,044 -98 848 1,795 2,741 2,978 3,688 4,634 5,5811.26 -744 302 1,348 2,395 3,441 3,703 4,488 5,534 6,5811.36 -444 702 1,848 2,995 4,141 4,428 5,288 6,434 7,581

Part B. Returns per acre above operating costs

Part C. Returns per acre above all cash costs (gross margin)

Table 6. Range analyses of avocado production costs and returns in San Diego County, 2001

Yield in pounds/acre

----------------------------------------------------$/acre---------------------------------------


Table 6. Range Analysis of avocado production costs and returns in San Diego County, 2001 (cont.)

3,000 4,000 5,000 6,000 7,000 7,250 8,000 9,000 10,000


Price ($/pound)0.76 -4,430 -3,884 -3,338 -2,791 -2,245 -2,108 -1,698 -1,152 -6580.86 -4,130 -3,484 -2,838 -2,191 -1,545 -1,383 -898 -252 3950.96 -3,830 -3,084 -2,338 -1,591 -845 -658 -98 648 1,3951.06 -3,530 -2,684 -1,838 -991 -145 67 702 1,548 2,3951.16 -3,230 -2,284 -1,338 -391 555 792 1,502 2,448 3,3951.26 -2,930 -1,884 -838 209 1,255 1,517 2,302 3,348 4,3951.36 -2,630 -1,484 -338 809 1,955 2,242 3,102 4,248 5,395

……………………………………………$/Acre …………………………………………………………….


Establishment and Production Costs for Avocados UCCE San Diego and Riverside Counties Page19

3,000 4,000 5,000 6,000 7,000 7,250 8,000 9,000 10,000

Part A. Costs per acre and per pound at varying yields

Operating costs/acre:Cultural Costs 2,517 2,517 2,517 2,517 2,517 2,517 2,517 2,517 2,517Harvesting Costs 600 800 1,000 1,200 1,400 1,450 1,600 1,800 2,000

Interest on operating capital 185 199 212 226 239 242 253 266 280

TOTAL OPERATING COSTS/ACRE 3,302 3,516 3,729 3,942 4,156 4,209 4,369 4,583 4,796TOTAL OPERATING COSTS/POUND 1.10 0.88 0.75 0.66 0.59 0.58 0.55 0.51 0.48

CASH OVERHEAD COSTS/ACRE 619 619 619 619 619 619 619 619 619

TOTAL CASH COSTS/ACRE 3,921 4,135 4,348 4,562 4,775 4,829 4,989 5,202 5,416TOTAL CASH COSTS/POUND 1.31 1.03 0.87 0.76 0.68 0.67 0.62 0.58 0.54

NON-CASH OVERHEAD COSTS/ACRE 1,967 1,967 1,967 1,967 1,967 1,967 1,967 1,967 1,967

TOTAL COSTS/ACRE 5,888 6,102 6,315 6,528 6,742 6,795 6,955 7,169 7,382TOTAL COSTS/POUND 1.96 1.53 1.26 1.09 0.96 0.94 0.87 0.80 0.74

Price ($/pound):0.67 -1,292 -836 -379 78 534 648 991 1,447 1,9040.77 -992 -436 121 678 1,234 1,373 1,791 2,347 2,9040.87 -692 -36 621 1,278 1,934 2,098 2,591 3,247 3,9040.97 -392 364 1,121 1,878 2,634 2,823 3,391 4,147 4,9041.07 -92 764 1,621 2,478 3,334 3,548 4,191 5,047 5,9041.17 208 1,164 2,121 3,078 4,034 4,273 4,991 5,947 6,9041.27 508 1,564 2,621 3,678 4,734 4,998 5,791 6,847 7,904

Price ($/pound):0.67 -1,911 -1,455 -998 -542 -85 29 371 828 1,2840.77 -1,611 -1,055 -498 58 615 754 1,171 1,728 2,2840.87 -1,311 -655 2 658 1,315 1,479 1,971 2,628 3,2840.97 -1,011 -255 502 1,258 2,015 2,204 2,771 3,528 4,2841.07 -711 145 1,002 1,858 2,715 2,929 3,571 4,428 5,2841.17 -411 545 1,502 2,458 3,415 3,654 4,371 5,328 6,2841.27 -111 945 2,002 3,058 4,115 4,379 5,171 6,228 7,284

Part B. Returns per acre above operating costs

Part C. Returns per acre above all cash costs (gross margin)

Table 7. Range analyses of avocado production costs and returns in Riverside County, 2001


----------------------------------------------------$/acre---------------------------------------


3,000 4,000 5,000 6,000 7,000 7,250 8,000 9,000 10,000

Price ($/pound):0.67 -3,878 -3,422 -2,965 -2,508 -2,052 -1,938 -1,595 -1,139 -6820.77 -3,578 -3,022 -2,465 -1,908 -1,352 -1,213 -795 -239 3180.87 -3,278 -2,622 -1,965 -1,308 -652 -488 5 661 1,3180.97 -2,978 -2,222 -1,465 -708 48 237 805 1,561 2,3181.07 -2,678 -1,822 -965 -108 748 962 1,605 2,461 3,3181.17 -2,378 -1,422 -465 492 1,448 1,687 2,405 3,361 4,3181.27 -2,078 -1,022 35 1,092 2,148 2,412 3,205 4,261 5,318


Table 7. Range analyses of avocado production costs and returns in Riverside County, 2001 (cont.)


----------------------------------------------------$/acre---------------------------------------


Appendix

Harvested Total pounds Price per Value perYear acreage per acre pound acre1996 23,947 6,751 0.78 5,2661997 22,600 5,710 0.95 5,4251998 26,347 5,217 1.00 5,2171999 26,347 4,252 1.33 5,6552000 25,997 4,717 1.23 5,802

Average 25,048 5,329 1.06 5,473

Harvested Total pounds Price per Value perYear acreage per acre pound acre1996 7,063 4,914 0.88 4,3241997 6,719 5,460 0.96 5,2421998 7,020 5,486 0.96 5,2671999 7,040 5,330 0.96 5,1172000 6,863 5,616 1.06 5,953

Average 6,941 5,361 0.97 5,180

average value per acre for avocados, Riverside County, 1996-2000

Harvested acreage, average yield, average price, and average value per acre for avocados, San Diego County, 1996-2000

Harvested acreage, average yield, average price, and

Etaferahu Takele Area Farm Advisor, Agricultural Economics

UCCE - Southern California 21150 Box Springs Road

Moreno Valley, CA 92557-8718 Phone (909) 683-6491 x 243

Fax (909) 788-2615 E-mail: [email protected]

Gary S. Bender

Farm Advisor, Subtropical Horticulture UCCE - San Diego County

5555 Overland Avenue, Building 4 San Diego, CA 92123 Phone: (858) 694-2856

Fax: (858) 694-2849 E-mail: [email protected]

Ramiro Lobo

Farm Advisor, Agricultural Economics UCCE - San Diego County

5555 Overland Avenue, Building 4 San Diego, CA 92123 Phone: (858) 694-3666


Peggy Mauk

Farm Advisor, Subtropical Horticulture UCCE - Riverside County 21150 Box Springs Road

Moreno Valley, CA 92557-8718 Phone: (909) 683-6491 x 224


The University of California prohibits discrimination against or harassment of any person employed by or seeking employment with the University on the basis of race, color, national origin, religion, sex, physical or mental disability, medical condition (cancer related or genetic characteristics), ancestry, marital status, age, sexual orientation, citizenship, or status as a covered veteran (special disabled veteran, Vietnam-era veteran, or any other veteran who served on active duty during a war or in a campaign or expedition for which a campaign badge has been authorized). University Policy is intended to be consistent with the provisions of applicable State and Federal laws. Inquiries regarding the University’s nondiscrimination policies may be directed to the Affirmative Action/Staff Personnel Services Director, University of California, Agriculture and Natural Resources, 1111 Franklin Street, 6th Floor, Oakland, CA 94607-5200, (510) 987-0096.

University of California Cooperative Extension and United States Department of Agriculture cooperating.

Published January 2002.

Text for Avocado Study, San Diego and Riverside County, 20....The study is based on assumptions of...

Documents

Transcript of Text for Avocado Study, San Diego and Riverside County, 20....The study is based on assumptions of...